Editorial: IRD win over the banks sends a clear message

Officials who fought the four big foreign-owned banks over $2 billion in disputed taxes can be forgiven for blowing their own trumpets this week. They had a resounding victory, announced late on the night before Christmas Eve, when the banks finally capitulated and accepted liability for more than $2.2 billion in tax.

As Revenue Minister Peter Dunne remarked, Inland Revenue had never doubted it was dealing with a clear-cut case of tax avoidance. The banks were equally adamant the transactions in dispute were within the rules.

One measure of the officials' success was that they stuck to their guns through five years of complex legal disputes to win the day. Another was the amount of money at stake - roughly four per cent of the total tax take projected for this financial year.

Before anyone gets carried away, however, they should remember this money is not a windfall. Most of it had already been provisionally accounted for.

Of far more importance is the long-term significance. It should put an end to a method widely used by foreign banks around the turn of the century to reduce the taxes they paid in New Zealand.

The banks argued that they had good advice that these "cross-border structured finance transactions" were acceptable. Thankfully they have now been disabused of this notion and, as an added reminder, also have to bear in mind Mr Dunne's pointed threat they could still face punitive penalty interest on the transactions.

Solicitor-General David Collins and Commissioner for Inland Revenue Robert Russell were right to declare this a very good result for taxpayers.

It was good not just for the particular victory over the banks but because it sent a clear message: foreign companies in New Zealand must pay their taxes like everyone else.